Pre-Labeling Market Valuations in the U.S. Green Building Stock and the Causal Effect of Green Labels

Publication

Publication

CEP 15-05

While green-labeled buildings have been found to sell at a premium compared to nearby
controls with similar observable characteristics, the voluntary nature of the labeling
decision implies green-labeled buildings may have different unmeasured characteristics
that may account for at least a portion of the premium. Therefore, it is unclear whether
green-labeled building premiums are a causal effect of the labels. I use data on repeat
sales transactions and detailed hedonic characteristics to test whether green-labeled
office buildings were selling at a premium before they were labeled, and combine these
results with post-labeling price premium estimates to identify realized cost-benefit ratios
for green-labeling policies. The data suggest the causal net benefits of green labels
range from $11.50-$19.95 per square foot. The estimated net benefits are smaller than
previous estimates that have focused solely on the benefits and ignored the potential
biases from nonrandom selection.